When Technology Gets Personal

Technology is altering the way we do business in a host of markets, in large part because of new capabailities for acquiring and managing information. While this does create efficienices, many remain leery due to the incursions on privacy this entails. Car insurance provides a recent example. Progressive Insurance has created a pilot program for TripSense, which uses a device that plugs into a car’s onboard diagnostic port to track driver behavior.

Based on how much, how fast, and when they drive, customers will be eligible for discounts on their insurance premiums. Additional information on rapid acceleration and braking is also collected but is not used in determining discounts at this time. The program offers drivers savings of up to 25 percent on their insurance. Those who sign up get a 5 percent discount; uploading driving information to Progressive allows additional discounts in the next policy period. These include the 5 percent disocunt for participating, as well as usage discounts based on speed and how much the vehicle was used. At this point, participation is voluntary, and customers can download and review their driver information before deciding whether or not to share it with the insurance company.

While the program provides a powerful tool for correctly pricing risk and combating adverse selection in insurance markets, detractors fear that those who decline to participate will automatically be placed in the high risk category and face higher insurance premiums. The struggle between efficiency and privacy continues…